Paul Krugman on Why Jobs Come First

From PBS' Moyers and Company:

Our current obsession with slashing the deficit is getting in the way of real work that needs to be done to preserve both our economy and our democracy. In this episode of Moyers & Company, Nobel Prize-winning economist and New York Times columnist Paul Krugman argues that we should put aside our excessive focus on saving money, try to overcome political recalcitrance, and spend money to put America back to work. Krugman offers specific solutions to not only end what he calls a “vast, unnecessary catastrophe,” but to do it more quickly than some imagine possible. His latest book, End This Depression Now!, is both a warning of the fiscal perils ahead and a prescription to safely avoid them.

Watch the entire interview here.

Here's the short version.

The government is so huge, and necessarily so, that it is a rather large chunk of our overall economy.  Consequently, the government, as an entity, has within its power the ability to affect the economy, for better and worse.  Case in point: when the government cuts spending, it removes chunks of the economy; conversely, when the government increases spending, it adds chunks to the economy.  Conservatives long for some sort of perfect situation where the government doesn't affect the economy, but this is, of course, impossible.  It does affect the economy, and that's how it will always be, how it's always been.

Right now, as Krugman observes again and again, our economic problem is very similar to that of the Great Depression: consumers, for various reasons, aren't spending.  That's why businesses aren't hiring, which only adds to the consumer spending problem.  People with jobs are afraid of losing them, which means they're not spending either, which, of course adds to the consumer spending problem.  If the government put a lot of money into consumers' hands, they would spend it, in mass, giving businesses a reason to hire again.  People who already have jobs would be less afraid of losing their jobs, and be more willing to spend again, which would also give businesses a reason to start hiring again.  Indeed, if the government does this enough, and in specifically targeted ways, it would kick start the economy into overall growth.

And growth, of course, would greatly increase the tax base, which necessarily increases tax revenue, which makes deficit spending much, much, much less of a problem.  But remember when I said above that cutting government spending removes a chunk of the economy, that the way the government uses its money has better and worse effects?  The conventional Washington wisdom is that the government needs to CUT spending, which has the opposite effect of what I described in the previous paragraph.  That is, cutting spending right now, during what is technically a period of growth, but very sluggish growth, might seem to be the way out of deficit spending, but is, in fact, simply making the problem worse by depressing the economy and shrinking the tax base.  That is, we're ruled mostly by lemming-like idiots who have no grasp of basic macroeconomic theory.

This is actually pretty simple stuff.  Very mainstream economics.  But nobody in Washington seems to get it.  So we're totally going in the wrong direction.

Go check out the interview.  Krugman explains it much better than I do, and he fills it in with lots of good details.  As you watch, keep in mind this isn't some partisan guy pushing crackpot theory.  He's a Nobel Prize winner in economics, and a professor at Princeton, a leader in his field.  The real deal.

And I have no idea why what he's pushing, Keynesian economics, totally mainstream stuff, is D.O.A. with the Feds.

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